Sounds a little odd as they’re suffering the tail end of a housing and infrastructure boom.

http://www.calculatedriskblog.com/2011/06/ny-times-overbuilding-in-spain.html

Oh good lord. I wonder if Jim Rose even realizes that he is simply assuming that the economy is always at full employment?

on your claim that “the claim that the causes of unemployment are to be found in labour markets, and not in macroeconomic variables such as the level of aggregate demand” hayek’s view is that cyclical unemployment is due to a discrepancy between the distribution of labour (and the other factors of production) between industries (and localities) and the distribution of demand among their products.

This discrepancy is caused by a distortion of the system of relative prices and wages and can be corrected only by the establishment in each sector of the economy of those prices and wages at which supply will equal demand.

As I pointed out in the OP, this claim requires labor distortions to bit simultaneously and sharply in many countries at once, despite the fact that their labor markets have almost nothing in common. If you’re willing to accept this kind of silliness, why not go for the Casey Mulligan line that it was all caused by markets rationally anticipating the election of the Obama Administration.

Friedman tipped that the Euro-zone would not last past the first major recession.

The current discontents in the euro-zone show that overreactions by governments can prolong and deepen the downturn, turning it into a depression.

One-third of EU unemployed are now in Spain: Cahuc et al. estimated that Spanish unemployment would be 40% lower if Spain adopted the less strict French laws!

Because their goal is to make profits, not to satisfy the need. Crisis of over-production; you don’t need to be an economist: it’s trivial.

Indeed. You’ve made a nice start on a summary of the issues. As you observe, we are enmeshed in a social system of a division and specialization of labor (and everything else), and although somewhat de-centralized and distributed, the power any of us has to make a living can be sharply curtailed by a breakdown in the coordinating mechanisms.

I will object to one gambit you offer: “we have a severe shortage of just about everything except labour”

In some respects, it doesn’t seem to me that we have a severe shortage of anything (though global limits on resources may be shadowing us). The stores are full of stuff, and merchants eager as ever to sell their stuff. Labor is not alone in being idle; in the U.S., for example, there’s an excess of retail commercial space, among other resources “unemployed”. The rhetoric of “austerity” notwithstanding, we have not experienced a harvest failure.

I think you right, though, to observe that natural need is not enough, nor natural effort. You have to have money to make your demand for goods, effective. And, to get a money income, you have to have a place in the productive structure — a job in the simplest terms.

Imagine twin circular flows driving economic activity: money in one direction, and goods in the other. Once you lose your place in the twin circular flows, you lose money income and the means to produce and sell goods/services into the system.

The question is, to what extent is it possible for the individual to bid their way back into the circular flow. Will reducing wages and prices clear the market for labor and restore full-employment, full-production?

I think it is at least plausible to think not.

I don’t think there’s much scope for substitution between labor and capital, at least not in the most productive sectors of the economy. If the capital stock and structure of production has shrunk, there simply are not as many places for people to work productively. The remedy should be to expand the structure and add to the capital stock, so that there are more places to be productive.

The New Keynesians like to emphasize that wages are sticky downward, and that’s a problem, with the implication that more flexibility downward would make the macro-economy more efficient or stable. It seems plausible to me that the problem — our problem at the moment, in fact — can be that wages that appear to be sticky downward are, in fact, sticky upward in the sense that the macro-economy is stagnating because Capital, particularly Financial Capital, is taking too large a share of national income. People are not getting the “marginal product” of their labor, because wages are too low, and therefore they can not make fully effective their demand for what they produce. Financial capital substitutes debt to finance effective demand, but that debt drives a debt-cycle, when the capacity to take on new debt is constrained by stagnating wages and financial capital “investments” (e.g. usury) crowd out industrial capital investment in productive capital stock.

In the 1920s and 1930s in the U.S., potential productivity was rising very rapidly, due to rapid technological progress in agriculture and continuous process manufacturing, not to mention electrical goods, automobiles, telephones, radio, movies, etc. With effective aggregate demand devastated by the deflation of 1929-33, and unemployment at 25% (and part-time employment at 50%) in 1933, individual labor markets “naturally” put heavy pressure on wages in a downward direction. But, I think it would be reasonable to suppose that wages would have to rise substantially to achieve a fully productive full-employment equilibrium. (You could do what they do in many third-world countries, which is to consign lots of people to extremely low-productivity employment in market stalls or agricultural plots, but that isn’t my idea of “full-employment”.)

I don’t know how to make the argument more plausible. We are all trained to “believe” in market prices, so that it doesn’t seem right to imagine that, due to financial misadventure on an enormous scale, the bargaining in market generates market prices, which are now signalling moves down the wrong track or in the wrong direction.